Stuck in the past, DOT botches its CARES Act implementation

Ten days ago the US Department of Transportation deflected requests for broad relief from airlines. The Agency indicated that rather than issue blanket exemptions for service requirements under the CARES Act it would act on an individual basis. Airlines followed suit with those requests. The initial DOT response is not promising. Spirit Airlines and JetBlue saw their requests broadly denied. The precedent set by these decisions is the latest in a string of indicators that the DOT is stuck in the past, providing guidance and regulation based on a decades-old view of the market.

By Order 2020-4-2, the Department modified its original methodology to address concerns raised by interested parties and to appropriately balance the needs of communities to retain at least minimal connections to the national air transportation system during the public health emergency, as required by the CARES Act, and the economic needs of certain segments of the industry.

Empty planes will be flying by the hundreds, spewing excess emissions and placing more airline employees at risk. But at least the DOT did not have to adjust its view of the industry to account for the new reality.

The final ruling also showed some of the agency’s inability to adjust to the modern era. Suggesting that service to any airport in a metro area is sufficient rather than serving all the airports in that area makes sense. With demand at such low levels anything to reduce unnecessary flying is smart. But the agency also used its own definitions of metro areas, airport groupings that do not reflect the reality of operations today. Why is Everett not included in the Seattle metro designation? Why is Providence still included in the Boston designation while Portsmouth and Worcester are not? Moreover, passengers searching for flights to a metro area will not necessarily know what the substitution airports are because online booking platforms do not use the DOT’s metro area lists. Despite a request from the Port Authority of New York and New Jersey to address that challenge the DOT chose to ignore it.

(Mis)Understanding seasonal service

The DOT was convinced to respect the seasonal nature of some routes. Alas, it chose to do so in an archaic manner. IATA defines two global seasons. This is useful for airport slot allocations and helps reduce administrative burden around schedule planning. In is not particularly surprising that the DOT chose to use IATA’s definition. But it also ignores far more nuanced and flexible scheduling that most airlines (even the biggest ones) use, particularly on domestic/short-haul routes. Summer seasonal service rarely starts in late March and rarely runs until the end of October. The DOT doesn’t care. It chose mid-August and evaluated schedules based on that one week, forcing airlines to operate those routes for a much longer season.

JetBlue felt the pain of this decision acutely. It chose to base its obligations off its Winter schedule that includes service to Palm Springs, CA. It asked the DOT for an exemption to not serve that destination as Summer demand barely exists when there isn’t a global health pandemic in play. The DOT does not care, “JetBlue confirmed its selection of the winter 2020 base line schedule and therefore is committed to serving all points from that baseline. Palm Springs (PSP) is part of this baseline and will therefore be maintained as a Point of Minimum Service Obligation for JetBlue.”

What remains to be seen is how the short season routes will be treated. Forcing an airline to launch service earlier than previously planned simply to meet the arbitrary requirements dictated by the DOT would prove both operationally and financially foolhardy.

Far beyond “minimal connections”

Viewed through the prism of a traditional hub-and-spoke network carrier the DOT’s proposals could, perhaps, be described as complying with the sprit of the CARES Act’s mandate to maintain minimal connections for all communities with the national air transportation system. Viewed through the new reality that is a blend of network carriers and various other models, however, the idea of minimal connectivity takes on a new definition. The DOT acknowledged in its initial guidance that the goal is not to have every route continue to operate. That is excessive for the needs of the communities.

For airlines that serve an airport from multiple hubs the capacity can be drawn down significantly, shedding routes and flight frequencies, while maintaining compliance. For airlines with fewer routes and fewer frequencies the relief offered under the DOT’s ruling is insufficient, especially in light of the Agency’s unwillingness to issue exemptions.

The resulting networks deliver capacity far in excess of requirements.

Supporting associated businesses

Another argument for the increased service requirements covers the various other companies, contractors and agencies that benefit from an airplane showing up at an airport. This theory fails at many levels.

The airports will see compensation from a separate $10 billion fund. Perhaps not enough to offset all the losses, but it should offset the landing fees typically paid. Moreover, the PFCs that generate a large portion of an airport’s revenue come from passengers departing, not an empty plane.

Moreover, many of the airlines are asking the DOT to approve the exemptions. They are requesting that service to their airport be reduced. They recognize the idiocy of flying empty planes in and the financial burden that places on the airlines. These airports see the bigger picture, that flying empty planes now increases the chances of no planes flying in the future as it potentially knocks some airlines out of business.

But the DOT does not care. It sees the industry through a historical lens that demands service levels well in excess of commercial demand. The government is paying for that extra service so economics cannot be the only consideration, of course. But the requirements also exceed any rational view of minimum connectivity into the national airspace network. It is a view that benefits the larger legacy carriers at the expense of newer airlines with more flexible schedules.

The DOT could have shown a sliver of flexibility, approving exemptions for a maximum of 30 days at a time, for example. This approach is common for the agency in other circumstances. It could have acknowledged the large number of states operating under “stay home” or similar orders and exempted those airports. Only in Puerto Rico, where Aguadilla and Ponce are closed to traffic, was that approved.

And so, instead of ensuring compliance with both the spirit and letter of the law, while helping the airlines to conserve cash and plan longer term, the Agency is focused on some historical view of the industry that no longer makes any sense.

About Seth Miller

Seth Miller has over a decade of experience covering the airline industry. With a strong focus on passenger experience, Seth also has deep knowledge of inflight connectivity and loyalty programs. He is widely respected as an unbiased commentator on the aviation industry.

He is frequently consulted on innovations in passenger experience by airlines and technology providers.

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Comments

Could NOT agree more with Seth Miller’s (no relation despite our shared family name) spot on analysis.

Forcing airlines like JetBlue to serve cities like Palm Springs, CA during the summertime to maintain eligibility for CARES funding, when it does NOT operate there during the summertime in the best of times, is patently ridiculous in every way, shape and form.

And that’s before considering just how wasteful it is in terms of fuel, or of course, needlessly spewing CO2 emissions at a time when we should be striving to reduce them.

Here’s hoping this insanity is revisited ASAP and that more rational minds will make adjustments to what clearly is the IRRATIONAL, and yes, terribly outdated approach as embodied in the DOT’s decision seen thus far.